This graph shows why Deflation is a bigger worry in Europe right now.
While it’s difficult to distinguish cause from effect between these two monetary indicators they both point towards deflation in Europe. The latest reading from February showed that the 3-month average of M3 money supply growth in the Eurozone remained 1.2% Y/Y. Ostensibly the Germans oppose balance sheet expansion because it is inflationary in nature. Conversely, balance sheet contraction is deflationary in nature; it’s just a matter of picking your poison.
(Source: Bloomberg & GBI)
